Emerging-market stocks sank the most in two years and currencies weakened as concern mounted that a Greek exit from the euro area will reduce demand for riskier assets in developing nations.
The MSCI Emerging Markets Index fell 2 percent to 960.99. The Shanghai Composite Index extended declines from its June 12 peak to 22 percent, entering a bear market amid a selloff by leveraged investors. Steelmaker Cia. Siderurgica Nacional SA led declines among Brazilian raw-material exporters as commodity prices retreated. Benchmarks in Poland, Hungary and Romania, which get more than 70 percent of their trade from the European Union, fell at least 0.8 percent.
Greece imposed capital controls to avert a collapse of its financial system and shuttered the stock market and banks at least until July 6, the day after Greeks vote in a referendum on proposals to restore bailout aid. The European Central Bank on Sunday froze the ceiling on emergency funding for Greek banks after talks to extend the rescue collapsed before a deadline for the Balkan nation to pay about $1.7 billion to the International Monetary Fund.
“It is not just the default, but also the increased probability of the exit of Greece out of the euro zone,” Michael Ganske, the head of emerging markets at Rogge Global Partners in London, said by e-mail. “The process would be messy as there is no blueprint for it. For emerging markets, I would expect central and eastern Europe to come under pressure the most due to regional proximity and trade links.”
The Greek crisis and concern the Chinese stock rally has run too far have pushed the MSCI developing-nation index to erase most of its gains this year. The gauge trades 0.5 percent up in 2015, after rallying as much as 12 percent through April. It is valued at 11.7 times the projected earnings of its members, slipping from a five-year high of 12.8 times.
CSN slumped 4.3 percent in Sao Paulo Monday as the Ibovespa stock gauge declined 1.9 percent. Commodity companies account for about 25 percent of the Brazilian benchmark’s weighting. The Standard & Poor’s GSCI index of 24 raw-materials declined 1 percent.
A Bloomberg gauge tracking 20 developing-nation currencies declined 0.4 percent, sliding for a fifth day. The premium investors demand to own emerging-market debt over U.S. Treasuries widened 17 basis point to 352 basis points, according to JPMorgan Chase & Co. indexes.
The index of Shanghai-listed shares, which surged 144 percent since 2013 through June 12, plunged 3.3 percent, retreating for a third day as signs of an exodus by leveraged investors overshadowed the central bank’s effort to revive confidence with an interest-rate cut. The retreat marks an end to the nation’s longest-ever bull market, which lured record numbers of individual investors and traders to bet an unprecedented amount of borrowed money.
In Poland, the WIG20 index dropped 1.8 percent to a five-month low. The zloty declined 0.5 percent to the weakest in four months against the euro. Hungary’s BUX Index slid 0.8 percent and the forint weakened 1.2 percent.
The ruble weakened 1.7 percent against the dollar. The dollar-denominated RTS Index slid 1.6 percent to a three-week low. Oil, Russia’s biggest export, tumbled the the lowest level since mid April in London.